First, shareholders asked companies to give them more rights to vote against directors they didn't support. Then they demanded more disclosure about governance and compensation. Then Canada's largest institutional investors persuaded companies to give them an annual vote on executive pay.
Now, shareholders are advocating a code of conduct. But this time, companies can breathe easy.
The Canadian Coalition for Good Governance (CCGG), which represents the country's largest institutional investors, is turning the focus on itself, proposing that major shareholders adopt new policies governing their dealings with companies whose shares they own.
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The proposed code of conduct, for example, would require institutional investors to develop a policy for monitoring companies and dealing with them when issues arise. The guidelines also call on large shareholders to publicize how they vote their shares and to use proxy advisory firms appropriately.
"There is certainly an element of eating our own cooking, as it were, with respect to developing this code," said Canada Pension Plan Investment Board chief executive officer David Denison, who is also chairman of the CCGG.
"CCGG is a strong believer in the value of creating and publishing guidelines and best practices for companies to learn from and follow. … We think having this code will be similarly beneficial for our CCGG members."
The code is Canada's response to a growing international movement seeking better governance practices and more transparency from major institutional investors, who wield enormous influence over many of the largest companies around the globe.
The U.K. financial regulator adopted a new mandatory "Stewardship Code," which took effect Monday, for large institutional investors, requiring them to develop policies on monitoring and communicating with companies. The code grew out of the financial crisis and bank failures in Europe, which led to questions about how shareholders had monitored and governed the companies they owned.
Among the new British requirements, major shareholders who manage money on behalf of others are told they should have a policy on voting and disclosure of voting activity, and should be willing to get involved and act collectively with other investors to compel change when problems threaten the ability of a company to continue operating.
The European Union is also examining new shareholder disclosure requirements as part of a broader review of governance at financial institutions. The EU has asked for comment on whether institutional investors should be required to adhere to a code of conduct and disclose their proxy voting records.
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The principles outlined by the CCGG are largely similar to the U.K. code, but the Canadian initiative is a voluntary one, while the British proposal was spearheaded by regulators and is mandatory for large investors.
CCGG executive director Stephen Griggs said his coalition would not be opposed to British-style regulation for investors, but said the issue is not on the radar screen for the Canadian Securities Administrators (an umbrella group of provincial securities commissions), so the CCGG decided to move ahead with its own plan.
"At best it would be years before the CSA is able to come up with anything meaningful," he said. "We felt that at least in the interim we should be developing best practices for institutional investors in Canada."
He said the CCGG's code has evolved naturally as the organization speaks regularly with boards of directors about their governance. "As investors, we go out and talk to boards about their governance, and fairly frequently boards say, 'That's great, but what about your members? How do we know you are following reasonable practices?'"
Doug Pearce, chief executive officer of the British Columbia Investment Management Corp., said his group has already adopted most of the principles in the code and believes it is appropriate for shareholders to examine their own practices.
"If we expect engagement and dialogue [with companies], then I think we have to also up our standards," said Mr. Pearce, whose organization manages $80-billion in assets for provincial organizations and pension plans.